CFPB Positioned For Deconstruction

Pocahontas Financial Control Scheme Returns To Bite Its Creator…

Everyone is aware how apoplectic the Democrat loonery became when their best laid schemes to put Hillary in the White House ran into the reality of electoral Cold Anger carried by the deplorables. Lots has been written about the gobsmacked reaction to the election, yet few have outlined the underlying policy reasons for the scope of the panic.

The desperate need for post-election control showcased the lefts’ reaction to fear. However, it is only by looking at the policy groundwork they lost where a political observer can evaluate the scale of defeat. Democrats created a continuum pathway that is now entirely controlled by the very nemesis of their controlling belief system.

The CFPB was created to establish power and control over almost every financial transaction in the United States. But it is only when you review how Elizabeth Warren and the control agents structured the czar head of the CFPB that you recognize the scale of the intent carried within the construct.

When Senator Elizabeth Warren and crew set up the Director of the CFPB, in the aftermath of the Dodd-Frank Act, they made it so that the appointed director can only be fired for cause by the President.

This design was so the Director could operate outside the control of congress and outside the control of the White House. In essence the CFPB director position was created to work above the reach of any oversight; almost like a tenured position no-one could ever remove.

The position was intentionally put together so that he/she would be untouchable, and the ideologue occupying the position would work on the goals of the CFPB without any oversight.

Elizabeth Warren herself wanted to be the appointed director; however, the reality of her never passing senate confirmation made her drop out.

The CFPB Director has the power to regulate pensions, retirement investment, mortgages, bank loans, credit cards and essentially every aspect of all consumer financial transactions.

However, in response to legal challenges by Credit Unions and Mortgage providers, last October the DC Circuit Court of Appeals ruled that placing so much power in a single Czar or Commissioner was unconstitutional:

[…] The five-year-old agency violates the Constitution’s separation of powers because too much power is in the hands of its director, found the U.S. Court of Appeals for the District of Columbia Circuit. Giving the president the power to get rid of the CFPB’s director and to oversee the agency would fix the situation, the court said. (more)

After the November 8th 2016 election (during the lame-duck Obama period), the CFPB sought an en blanc review of the decision by the circuit court panel. However, in March the Trump administration reversed the government’s position. In essence, Team Trump was now positioned to use the power of the CFPB Director to eliminate itself. The entire DC panel heard the appellate case in May and a decision is pending. [Either outcome Trump wins]

Facing insurmountable legal headwinds, and simultaneously finding himself under the control of the executive branch, the Obama Director of the CFPB Richard Cordray announced his resignation.

President Trump has now appointed OMB Director Mick Mulvaney as interim head of the agency; with no rush on a permanent replacement. [Mulvaney will return to his role as OMB Director as soon as a permanent replacement is nominated. Until then he wears two

While in congress Mick Mulvaney, along with dozens of Dodd Frank critics, strongly opposed the creation of the CFPB and the scope of control within its mandate to regulate all consumer financial transactions. During his confirmation hearing Mulvaneyreferred to the CFPBas “one of the most offensive concepts” in the U.S. government and that he stood by an earlier comment describing it as a “sad, sick joke.”

The Democrats, most specifically Elizabeth “Pocahontas” Warren and crew, are apoplectic at the end result of their too-cute-by-half plans and the possibility of their agency being deconstructed. What is even more delicious to note – in their rush to construct the entire CFPB scheme the Dodd-Frank law does not specify the deputy director as next in line to serve in the event of a vacancy. That means President Trump is within his normal constitutional powers to appoint whomever he likes.

In appointing Mick Mulvaney President Trump has now put in place someone who can be counted on to deconstruct Warren’s leftist plan to control all our financial transactions by dictatorial fiat and unilateral authority. By their own doing Pocahontas et al created a situation they are now powerless to stop.

Expanding the Consequence: This now becomes a critical part of President Trump and Treasury Secretary Mnuchin’s overall strategy to createa secondary financial marketfor smaller banks and credit unions to operate the Main Street economy.

Because Dodd-Frank Act created even fewer and even bigger banks it’s become almost impossible to re-institute something like a Glass Steagall wall between commercial and investment divisions within banks.

Back in July 2010 when Dodd-Frank banking regulation was passed into law, there were approximately 12 to 17 banks who fell under the definition of “too big to fail”.

Meaning 12 to 17 financial institutions could individually negatively impact the economy, and were going to force another TARP-type bailout if they failed in the future. Dodd-Frank regulations were supposed to ensure financial security, and the elimination of risk via taxpayer bailouts, by placing mandatory minimums on how much secure capital was required to be held in order to operate “a bank”.

One large downside to Dodd-Frank was that in order to hold the required capital, all banks decreased lending to shore-up their liquid holdings and meet the regulatory minimums. Without the ability to borrow funds, small businesses have a hard time raising money to create business. Growth in the larger economy is hampered by the absence of capital.

Another downstream effect of banks needing to increase their liquid holdings was exponentially worse. Less liquid large banks needed to purchase and absorb the financial assets of more liquid large banks in order to meet the regulatory requirements.

In 2010 there were approximately twelve “too big to fail banks”, and that was seen as a risk within the economy, and more broad-based banking competition was needed to be more secure.

Unfortunately, because of Dodd-Frank by 2016 those twelve banks had merged into only four even bigger banks that were now even bigger risks; albeit supposedly more financially secure in their liquid holdings. This ‘less banks’ reality was opposite of the desired effect.

The four to six big banks (JP Morgan-Chase, Bank of America, Citigroup, Wells Fargo, US BanCorp and Mellon) now control $9+ trillion(that’s “TRILLION). Their size is so enormous that small group now controls most of the U.S. financial market.

Because they control so much of the financial market, instituting a Glass-Steagall firewall between commercial and investment divisions (in addition to the Dodd-Frank liquid holding requirements), would mean the capability of small and mid-size businesses to get the loans needed to expand or even keep their operations running would stop.

That’s the underlying problem for a Glass-Steagall type of regulation now. The Democrats created Dodd-Frank which: #1 generated constraints on the economy (less lending), #2 made fewer banking options available (banks merged), #3 made top banks even bigger.

This problem is why President Trump and Secretary Mnuchin are working to create a parallel banking system of community and credit union banks, individually less than $40 billion in assets, that are external to Dodd Frank regulations and can act as the primary commercial banks for small to mid-sized businesses.

The goal of “Glass Steagall”, ie. Commercial division -vs- Investment division, is created by generating an entirely new system of smaller banks under lowered regulation. The ten U.S. “big banks” operate as “investment division banks” and are subject to the rules and regulations of Dodd-Frank. The smaller banks and credit unions have less regulation and operate as the “Commercial Side” directly benefitting Main Street.

Instead of fire-walling an individual bank internally (within its organization), the Trump/Mnuchin plan firewalls the banking ‘system’ within the United States internally.

Tragic Downfall of the Consumer Financial Protection Bureau

Conceived as a government watchdog with noble aims, the CFPB was doomed by a structure that made it an inherently political agency.

On October 11, 2016, in PHH Corp. v. Consumer Financial Protection Bureau, a three-judge panel of the D.C. Circuit Court of Appeals found the CFPB’s structure unconstitutional and “fixed” it by empowering the president to remove the agency’s director at will. Sounds dull, but this is a tragic story.

Metamorphosis:

In 1988, during my first year of law school, I met a young professor named Elizabeth Warren. She was like a tornado — energetic, fascinating, and scary. She was also a Republican. Despite that last bit of trivia, she hadn’t changed much when Americans began to notice her two decades later.

In fact, a Reagan Republican might have written her 2007 article “Unsafe at Any Rate,” which proposed a new regulatory agency to help consumers understand credit products by simplifying disclosures and ending deceptive industry practices. Free-market economists would approve of her rationale for a “Financial Product Safety Commission:”

To be sure, creating safer marketplaces is not about protecting consumers from all possible bad decisions. . . . Terms hidden in the fine print or obscured with incomprehensible language, unexpected terms, reservation of all power to the seller with nothing left for the buyer, and similar tricks and traps have no place in a well-functioning market. . . . When markets work, they produce value for both buyers and sellers, both borrowers and lenders. But the basic premise of any free market is full information. When a lender can bury a sentence at the bottom of 47 lines of text saying it can change any term at any time for any reason, the market is broken.

Over the next two years, the economy collapsed, Democrats gained control of Congress and the White House, and Warren grew famous criticizing big banks in congressional hearings. She lobbied Democrats to include her agency in their Wall Street–reform legislation, arguing that effective enforcement of consumer-protection laws required a regulator independent from politicians beholden to the financial industry. The Democrats had a better idea: They would make her agency independent from Republicans.

Circumventing the Constitution took two steps. First, Democrats inserted a few clever workarounds into the Dodd-Frank Act, which created the CFPB on July 21, 2010. Commissions such as the one Warren first proposed are ostensibly bipartisan, so a president-appointed director would lead the new agency. Since there might be a Republican president one day, the director would be practically irremovable after Senate confirmation to a five-year term that could extend indefinitely until the next director’s confirmation. To prevent future Republican-led Congresses from cutting the bureau’s budget, funding would be guaranteed through Federal Reserve profits rather than taxpayer dollars.

Next, the enlarged new agency would be staffed with Democrats, top to bottom. There would not be a Republican director nominee for at least five years, and if one was ever confirmed, entrenched left-wing managers could undermine “attempts to weaken consumer protection.” The plan wasn’t perfect, but it was pretty good.

Exclusion:

Warren, who had hoped to be the CFPB’s first director, led the one-year agency-building process. She chose loyal Democrats to be her senior deputies; they hired like-minded middle managers, who in turn screened lower-level job seekers. It was too risky for interviewers to discuss politics, so mistakes were possible. I was one of them.

As a Jewish graduate of a liberal college living on Manhattan’s Upper West Side, I fit the stereotypical Democratic profile. In fact, my primary influences were my business-school professors at the University of Chicago, the epicenter of free-market capitalism. I supported the agency Warren proposed in 2007 for the same reason I had worked at the Securities and Exchange Commission — accurate information improves markets’ efficiency. I had not read important sentences at the bottom of the Dodd-Frank Act’s thousands of lines of text.

In March of 2011, I interviewed with Richard Cordray, the pre-operational agency’s new enforcement chief. By May, I had surrendered my prized rent-stabilized apartment and moved to Washington to be the CFPB’s 13th enforcement attorney.

I would not have been so lucky two months later. As screening techniques improved, Republicans were more easily identified and rejected. Political discrimination was not necessarily illegal, but attempts to hide it invited prohibited race, gender, religion, and age discrimination. In retrospect, the Office of Enforcement’s hiring process, which was typical for the bureau, violated more laws than a bar-exam hypothetical.

Job seekers interviewed with two pairs of attorneys and most senior managers. All Office of Enforcement employees were invited to attend the weekly hiring meetings, where interviewers summarized the applicants. Any attendee could voice an opinion before each candidate’s verdict was rendered; even a single strong objection was usually fatal. Note taking was strictly forbidden, and interviewers destroyed their records after the meetings. I never missed one.

Clear verbal and non-verbal signals quickly emerged. The most common, “I don’t think he believes in the mission” was code for “he might not be a Democrat.” At one meeting, Kent Markus, a former Clinton-administration lawyer who had joined the bureau as Cordray’s deputy, remarked that an applicant under consideration “sounds like a good liberal to me.” After a few seconds of nervous laughter and eye contact around the room, Markus recognized his slip. “I didn’t say that,” he awkwardly joked. The episode so unnerved one attorney that he never attended another hiring meeting.

Applicants who had represented financial-industry clients were routinely rejected, depriving the bureau of critical expertise and business perspective. A memorable exception sought to become only the second African-American female enforcement attorney. Following an hour-long debate that would have doomed most applicants, her verdict was postponed pending additional interviews. Her prospects looked good at a subsequent meeting until someone expressed concerns over her frequent use of the F word. She survived a second excruciating hour of debate, and worked for the CFPB just long enough to become a partner at a big law firm.

White men over 40 received the opposite treatment. One attorney’s résumé was so spectacular that interviewers struggled to come up with plausible excuses to reject him. Finally, someone blurted out, “For the love of God, don’t hire him!” Cordray, who always spoke last, had no choice. He asked that the rejection letter be delayed until he could call the Supreme Court justice who had left a voicemail recommending the man.

Coronation:

Warren would have faced less opposition to being the chair of a bipartisan commission, and might have been confirmed before the 2010 midterm elections restored Republicans’ Senate filibuster and House majority. Instead, her efforts to charm Congress failed and she was heartbroken when the president declined to nominate her as director. She left the agency she had conceived and nurtured on its birthday, July 21, 2011. Biblical allusions to original sin and expulsion from the Garden of Eden were spoiled when she was elected Massachusetts’ junior senator later that year.

On July 17, 2011, the president nominated Cordray to lead the bureau. The soft-spoken Ohio Democrat and University of Chicago alumnus — a former Jeopardy champion and state attorney general who had clerked for Judge Robert Bork and two conservative Supreme Court justices — was literally and strategically a smart choice.

But in the rush to pass the Dodd-Frank Act, Democrats had made a drafting error that limited the CFPB’s most important powers until the bureau had its first director. Republicans vowed to use that leverage to filibuster any nomination until Democrats revised the bureau’s structure and funding.

Cordray was preparing for his confirmation hearing when I e-mailed him one of my favorite Ronald Reagan quotes:

“Free men engaged in free enterprise build better nations with more and better goods and services, higher wages and higher standards of living for more people. But free enterprise is not a hunting license”

He still hadn’t decided how to use the quote when I bumped into him in the office late one night. I asked if he was studying harder than he had for Jeopardy, and for the next half hour he reeled off almost every question he’d been asked a quarter-century earlier. He seemed as impressed by my correct answers as I was by his memory.

From 2011 to 2016, Republicans regularly passed legislation to restructure the CFPB as a bipartisan commission and bring its funding under the congressional appropriations process. Democrats labeled and rejected all changes as attempts to weaken consumer protection.

The CFPB itself was defined by this existential threat, driven to paranoid secrecy and obsessive self-promotion. It viewed Republican legislative-oversight initiatives as insincere attacks, sometimes appropriately so. But its stonewalling of Congress, and even of its own inspector general, was shocking.

A knowledgeable friend within the bureau once debriefed me on the unit that handled oversight requests. The unwritten policy of its supervising attorneys, and in particular of one former Democratic Senate staffer, was “never give them what they ask for.” When the inspector general complained to Cordray about that supervisor, Cordray took no action because she had accepted a job in the White House. Another former Democratic staffer replaced her. Soon, a career professional in the unit who had resisted pressure to engage in witness coaching and other unethical practices was reprimanded for insubordination and reassigned. The inspector general investigated and issued a report to Cordray that concluded the reprimand was unwarranted and the supervisors had engaged in obstruction.

My own experience as a House Financial Services Committee staffer in 2015 left me no doubt the debriefing was accurate. In one episode, unbeknownst to the CFPB, the committee had obtained internal documents that showed the bureau planned to send discrimination-restitution checks to thousands of Caucasian car buyers — the only way to distribute the restitution fund it had extracted from an auto-finance company based on trumped-up allegations that car dealers had charged higher interest rates on loans to minority customers. The committee’s chairman sent Cordray a letter precisely describing and requesting the documents and related information. I was appalled by the response.

The oversight lawyers sent almost none of the requested information or documents, together with a letter from Cordray pretending the bureau had provided everything. I spent days drafting e-mails demanding either the omitted items or a declaration that they did not exist. Each time, the supervisor simply replied that the chairman’s inquiry was “better suited” to a private briefing with committee staff. Subsequent committee subpoenas fared no better. CFPB enforcement attorneys would have bankrupted a company whose lawyers used similar tactics to stonewall the bureau.

Publicity:

The flip side of the CFPB’s secrecy was its single-minded pursuit of publicity. External Affairs was the bureau’s most powerful division. Headlines drove and often hindered decision-making and operations, as I witnessed first hand.

Shortly after his nomination, Cordray gathered senior enforcement attorneys to discuss an op-ed by Bill McLucas, my first SEC enforcement director. The piece urged the CFPB to adopt the SEC’s Wells process and allow potential defendants to submit their cases directly to the director before he approved lawsuits and other enforcement actions. Everyone at the table rejected the idea, but I stressed the importance of fairness and due process, especially when legal expenses could destroy an innocent defendant. Cordray agreed. I would draft the procedures.

The working group added restrictions to discourage submissions, like strict page limits and a 14-day deadline. I named it the Notice and Opportunity to Respond and Advise, or NORA, process. Everybody liked the friendly, feminine acronym.

However, External Affairs decided “NORA” wasn’t testing well with journalists, and renamed it “Early Warning Notice.” On Saturday, two days before the November 7, 2011 Early Warning Notice press release and media call, the general counsel’s office sent an e-mail postponing the rollout due to legal concerns. Minutes later, External Affairs replied that it was not their problem and there would be no postponement.

Within days of the rollout, a company threatened to sue for trademark infringement, and the original name was restored. I wish I could report that a NORA submission ever persuaded the director to decline an enforcement action.

Misery:

2011 was a wonderful time to work at the CFPB. Most of the employees had emigrated from distant cities, and they became each other’s second families. Five attorneys huddled with me in a small office dubbed the “Meat Locker” for its arctic air conditioning, and then changed locations every few weeks. My favorite was the “Warren Room,” a cluster of twelve cubicles permeated by non-stop clatter from a nearby ping-pong table.

We pitched ideas for the first investigations. Mine involved the currency-exchange rates credit cards use to convert foreign charges to U.S. dollars. Loud boos and cries of “Who cares about rich tourists?” filled the room. I argued that many international travelers are students and retirees, and the law protects everyone. Plus, we should show wealthier people the CFPB helps them, too. Cordray agreed, and approved my investigation.

Things changed after the recess appointment. Markus, the new enforcement chief, exacerbated hiring biases by soliciting anonymous oral comments about colleagues competing for twelve mid-level supervisor positions. Similar illegal practices throughout the bureau resulted in a dearth of real-world experience, and then socialistic management schemes camouflaged by new-age nomenclature.

Enforcement had issue groups, issue teams, working groups, strategy teams, investigation teams, and litigation teams. Individual initiative was forbidden — investigation ideas were to be submitted to the collective even before preliminary Internet research. An issue group took custody of my exchange-rate investigation and aborted it.

The “us against the world” culture that was exhilarating in a startup became debilitating in a mature agency. Internal policies to minimize record-keeping deprived the CFPB’s enemies of statistics, but limited management tools. External criticism was dismissed as disingenuous, good advice ignored. Problems that could not be acknowledged could not be fixed. Morale and productivity deteriorated. The employees unionized.

There were a few winners, most with political connections, and many more losers. Moderates who objected were marginalized or ostracized.

Leonard Chanin, a 20-year veteran of the Federal Reserve, was the rule making division’s first leader. During meetings, I was humbled by his dignified intellect and mastery of financial laws. In 2013, I asked him why he’d left the bureau. With characteristic understatement, he replied, “I thought it was going to be a professional agency.”

Other employees had fewer options. I once shared a cab with an enforcement attorney who’d had several drinks and was so despondent over her treatment at work that I was terrified she would harm herself.

Discrimination:

During my job interview, Cordray asked what I thought Enforcement should do first. I said there was plenty of low-hanging fruit like credit-report errors, inscrutable fine print, and fraud to keep us busy until the skeptics got comfortable. He agreed.

Car dealers were the highest-hanging fruit — the Dodd-Frank Act explicitly exempted them from the CFPB’s jurisdiction. A month after his recess appointment, Cordray approved a resource-intensive campaign to stop dealers from negotiating interest rates on car loans, a critical profit source. The comically aggressive plan involved guessing car buyers’ races from their names and addresses, using manipulated statistics and the controversial disparate-impact legal doctrine to label dealer lending discriminatory, and accusing finance companies of discrimination for purchasing dealers’ loans at competitive market prices.

The original and least controversial use of the disparate-impact doctrine, which allows discrimination to be proven by statistics alone, was in employment cases. Unfortunately, a September 2013 confidential Deloitte consulting report found that CFPB minority employees received below-average performance-review scores — much stronger disparate-impact evidence than the bureau was using for dealers. Union officials were briefed on, but not given, the report.

Cordray still had not fixed the performance-review system on March 6, 2014, when a perfect storm of the CFPB’s flaws erupted. The report’s findings were leaked to the media, and Republicans pounced. During several embarrassing congressional hearings, employees described disturbing discrimination problems at the agency, like a unit nicknamed “the Plantation.”

That summer, I ran into a CFPB-union official who had shivered with me in the Meat Locker three years earlier. I said Cordray’s senior managers must have been keeping him in the dark. “No,” he replied, “Rich knows everything, the smallest details. He’s changed. He’s over at the White House playing basketball with the president. He’s not the same guy.”

Following the hearings, the CFPB attorney who had defended the bureau against Equal Employment Opportunity claims was chosen to run its EEO program. Another year passed before an African American woman in the EEO office testified to Congress that the problems had worsened; the CFPB was more concerned with preventing bad publicity than with preventing discrimination.

Abuse:

The Dodd-Frank Act prohibited “abusive acts or practices” that take unreasonable advantage of someone’s inability to protect their interests. The prohibition did not apply to the CFPB.

Enforcement was still hiring and training attorneys when the recess appointment was announced at the beginning of 2012. Critical procedures had not been written, there was no management structure, and administrative trials were a distant dream.

Around that time, the Department of Housing and Urban Development transferred its investigation of PHH, a huge mortgage originator, to the CFPB. Most laws contain a statute of limitations that prevents lawsuits from being filed too many years after alleged violations occurred. Chuckles and sighs of relief filled Enforcement’s weekly meeting after an attorney announced that PHH had granted him a “tolling agreement” to temporarily stop the statute-of-limitations clock. Somebody sneered, “Suckers!”

In May of 2012, PHH received a massive civil investigative demand — basically, a subpoena for documents and information issued by government agencies such as the CFPB. Enforcement’s brutal Rules of Investigation gave the company 20 days to review the interrogatories and document requests, meet with enforcement attorneys, and petition the director to scale back the CID. Cordray denied PHH’s application for a two-week extension of the filing deadline.

In July of 2012, I got a call from a law-school classmate who suggested I join his law firm. By September, visitors to my new office at the firm could read Cordray’s recommendation letter, which hung next to a photo of us shaking hands moments after he was sworn in.

Critical procedures had not been written, there was no management structure, and administrative trials were a distant dream.

On September 20, 2012, Cordray issued his decision rejecting all of PHH’s modification requests. I had doubts about the opinion, which appeared to punish the company’s defiance, even before I ran into one of PHH’s lawyers the following January. I asked what had gone wrong. “Nothing,” he replied. “We just assumed the CFPB conducted itself like other agencies.”

A month later, I understood. My first CFPB-target client was a small-business owner whose twelve-year commercial relationship with a local bank was governed by the same law PHH would later be accused of violating. In 2011, the bank’s regulator had withdrawn its blessing from the arrangement, charged the bank a small fine, and transferred jurisdiction to the bureau. The file collected dust for over a year before Enforcement asked the man to sign a tolling agreement that only a lawyer would recognize as permanent. Fortunately, he contacted me first.

The man felt he’d done nothing wrong, but uncertainty about the investigation would force him to lay off employees. I called the enforcement attorney and offered to come right over and discuss a settlement. When I declined the tolling agreement, he said I had a conflict of interest, hung up, and spent the next month trying to find one. He gave up after I reminded his supervisors that interfering with my client’s constitutional right to counsel was a serious ethics violation.

For the first two hours of the subsequent settlement conference, the attorney refused to discuss a settlement, and continued to press for the tolling agreement. I insisted he make an offer. Finally, he did — ten times more than the bank had paid. I accepted and asked for the settlement documents. Instead, the next day he sent a civil complaint and threatened to sue within 24 hours if my client didn’t sign a tolling agreement.

I replied that my client wanted to make a NORA submission before the director approved the lawsuit. No scenario could have been more appropriate: The legal expenses would crush the man’s business and cost employees their jobs; he’d had no opportunity to present evidence or tell Cordray his side of the story; and Enforcement hadn’t even conducted an investigation.

The response was swift. I was informed that the NORA process was discretionary and the director felt it was not in the bureau’s interests to let my client present his case — request denied. The poor man signed a tolling agreement, but not the irrevocable one Enforcement had sent him before he had a lawyer.

Injustice:

During my first-year legal-ethics seminar, we discussed a scene from A Man for All Seasons in which Will Roper urges Sir Thomas More to arrest Richard Rich, an evil man who has broken no laws. When Roper says he would cut down every law in England to get at the Devil, More replies:

Oh? And when the last law was down, and the Devil turned round on you — where would you hide, Roper, the laws all being flat?

Bruce Mann, Professor Warren’s husband, taught the seminar. Perhaps the film’s ending — More’s execution based on Rich’s perjured testimony — inspired Warren to cut down the Constitution to get at the banks.

SEC enforcement attorneys are often asked, “Is my client a target?” They’re trained to respond, “SEC investigations are a search for the truth — they don’t have targets, they have subjects.” In 2011, I mentioned CFPB attorneys’ exclusive use of “target” to Cordray. He liked the SEC’s practice, and approved the internal procedure I had written to adopt it. Whenever he slipped and used “target” at meetings, he smiled and corrected himself.

By 2013, no other label worked. For each issue the strategy team identified, one or two companies were investigated. The CFPB’s complaint database contained grievances against almost every financial business. Enforcement targeted the companies with the most revenue — what it called the “chokepoints” — rather than those with the most complaints.

Enforcement’s internal procedures restricted the contents of investigation files, about the only thing the CFPB had to turn over to defendants before administrative trials. One of the procedures’ drafters told me that withholding exculpatory evidence from targets was ethical because the bureau was like any civil litigant — it did everything it could within the law to win.

Targets were almost certain to write a check, especially if they were accused of subjective “unfair, deceptive, or abusive acts or practices.” Even the size of the checks didn’t depend on actual wrongdoing — during investigations, Enforcement demanded targets’ financial statements to calculate the maximum fines they could afford to pay.

Defendants who chose to fight the bureau could not seek relief in federal court until all administrative processes were exhausted, despite those processes’ being a farce — Floyd Mayweather Jr. would envy Enforcement’s record in appeals to the director. And even if a case did make it that far, the courts were bound to defer to the director’s judgment unless he had clearly misinterpreted a law. With no meaningful opportunity to defend themselves, many businesses were forced to pay millions of dollars, regardless of guilt or harm to consumers.

Neglect:

Despite these advantages, the CFPB’s misplaced priorities kept it from protecting consumers during the most widespread fraud in recent history.

On September 8, 2016, Wells Fargo paid the CFPB, the Los Angeles city attorney, and the comptroller of the currency $185 million in penalties for bank employees’ having opened millions of unauthorized customer accounts since 2011. External Affairs’ media blitz and the bureau’s $100 million share of the penalties created the illusion that Enforcement had led a heroic investigation. CFPB supporters, with Pavlovian predictability, shamed Republicans for attempting to weaken the agency.

But the settlement reserved only a few million dollars in restitution for victims. Enforcement didn’t advance consumer lawsuits by making the bank admit wrongdoing, and it didn’t do much to help criminal prosecutors beyond giving the Department of Justice legally mandated evidence.

Congressional hearings revealed that two years of examinations, thousands of bank-employee firings, and numerous complaints had failed to get the bureau’s attention before the Los Angeles Times published a detailed exposé late in 2013. Worse yet, from 2013 to 2016, the CFPB took no action while the bank continued the incentive program that drove the unauthorized account openings. Wells Fargo CEO John Stumpf and Carrie Tolstedt, the executive overseeing the program, earned tens of millions of dollars. Tolstedt retired with a huge nest egg two months before the settlement.

The CFPB had waited while the city attorney and OCC completed their investigations, and then negotiated its headline-grabbing penalty. A month after the settlement, it was clear that simply taking regulatory action to highlight the severity of the fraud had triggered the real wake-up call for bank executives. Wells Fargo’s stock lost billions of dollars in value, and its board clawed back $60 million from Stumpf and Tolstedt before firing Stumpf. The $100 million penalty may deter future violations, but no more so than a smaller fine or a CFPB lawsuit would have three years earlier.

During Senate hearings, Cordray implied that Enforcement had stood down because all available personnel were busy investigating deceptive credit-card add-on products and other violations. In doing so, he inadvertently revealed that the campaign to expand the bureau’s reach to car dealers had diverted limited resources from mission-critical tasks.

Reckoning:

Fortunately for PHH, the CFPB had accused it of violating a specific mortgage law. For two decades, HUD had interpreted the law and provided guidance that allowed business relationships like the ones Enforcement had investigated at PHH; payments to the company and its affiliates above the reasonable market value of services rendered were deemed illegal kickbacks. An administrative-law judge, following HUD’s interpretation, ordered PHH to refund consumers $6.4 million in excess payments. PHH appealed to the director.

Cordray’s decision was stunning: HUD’s interpretation was wrong; the CFPB was not bound by the mortgage law’s three-year statute of limitations; all payments during the last eight years were kickbacks; PHH didn’t owe $6.4 million, it owed $109 million.

Centuries before a 2016 Nobel Prize winner catalogued the havoc wrought by government officials with God on their side, the founding fathers put checks and balances into the Constitution to limit it. By demonstrating the inevitable consequences of absolute power, Cordray had invited the appellate court to revoke it.

Parts of the decision by the three-judge panel were obvious: HUD’s interpretation of the law was correct; Cordray’s attempt to reinterpret it retroactively violated PHH’s due-process rights; the CFPB could not disregard deadlines in the laws it enforced.

The rest of Judge Brett Kavanaugh’s 100-page opinion, an eloquent dissertation on liberty, democracy, and justice, answered questions that had been debated for six years. The people elect the president. Executive agencies report to the president, who can remove their leaders at will. While the president cannot remove members of independent commissions, their power is tempered by bipartisan collaboration and transparency. The Dodd-Frank Act made the CFPB’s unelected director “the single most powerful official in the entire U.S. Government, other than the President,” and arguably more powerful in consumer financial-protection matters. The Constitution permits single-director executive agencies and independent commissions, but not single-director independent agencies. The most important words in the opinion were buried in footnote twelve: “An agency structure must be adjudged on the basis of what it permits to happen.”

By demonstrating the inevitable consequences of absolute power, Cordray had invited the appellate court to revoke it.

Judge Kavanaugh’s remedy was simple: He struck 18 words from the Dodd-Frank Act and announced, “The President of the United States now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.” If the ruling were upheld, Warren’s agency would lose its independence. Democrats shrugged; they would undo the decision after winning the election, just 28 days away.

Shimon Peres’s death brought to mind parallels between the CFPB and the state of Israel. Both were established during a brief window of political opportunity created by sympathy for the victims of a catastrophe, both defined by existential threat, and both criticized for territorial expansion. Both might also have used the land-for-peace formula to resolve longstanding conflicts.

The CFPB’s metaphoric swap was Democrats’ restructuring the bureau as a bipartisan commission in exchange for Republicans’ recognizing the agency’s independence by blessing funding through the Federal Reserve. Unlike Israel, Democrats never offered the deal, even after losing everything but their Senate filibuster in the election.

Instead, on November 18, 2016, the CFPB petitioned the full court of appeals to rehear the case. If that fails, Democrats hope to exclude Republicans until Cordray’s term ends in 2018, or even until the 2020 election, by appealing to the Supreme Court. The strategy assumes President Trump cannot remove Cordray for cause — “inefficiency, neglect of duty, or malfeasance in office.”

Epilogue:

Late one evening in 2012, I entered the Farragut North metro station a few steps behind Cordray, who was talking on his cell phone. I kept my distance on the long descending escalator, but overheard snippets of the conversation. “That good plan, Kemosabe.” “You plenty wise, Kemosabe.” I remember thinking that his twelve-year-old son couldn’t possibly appreciate how lucky he was. Four years later, on March 16, 2016, Cordray testified before the House Financial Services Committee, which had published its copies of the documents the CFPB refused to provide because the chairman’s requests were “better suited to a briefing.” Representative Sean Duffy asked several pointed questions about the blatant stonewalling. Under oath, Cordray replied, “If you ask for responsive documents in an area, we give you the responsive documents we can.”

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